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Should landlords be worried about a Labour government?

Posted 9th Nov, 2017

Much has been published about the Labour Party's desire to provide tenants with increased security of tenure and more affordable means to rent. However, is it a foregone conclusion that these policies will make landlords worse off?

Rent controls

At October's party conference Jeremy Corby floated the idea of introducing rent controls across cities hard pressed by increasing rents and lack of rental stock.

Rent controls are where rents are fixed at lower levels than the market would dictate and have been in place for much of the 20th century. It is rent controls that have contributed to the widely held stereotype of the "slum landlord".

In reality, rent controls would do little to help private renters as lower income yields would force many landlords to sell up, further reducing the supply of rental properties on the market. For those landlords who don't sell, being forced to accept lower rents would likely result in underinvestment in properties as they try to recoup their lost revenue. Rent controls would therefore result in an increase the number of sub-standard poor quality rental properties across the UK.

To be clear, living standards did not improve in the private rented sector until rent controls were removed in the late 1980s and market forces encouraged landlords to improve the condition of their property because they could achieve higher rents.

All in all, the introduction of rent controls would adversely affect the very electorate Jeremy Corbyn aims to benefit.

Under a Corbyn led government we would likely see an increase in the minimum tenancy length to three years with fixed rate annual rent increases in line with inflationary indices.

Longer tenancies with fixed rate annual increases

Under a Corbyn led government we would likely see an increase in the minimum tenancy length to three years with fixed rate annual rent increases in line with inflationary indices. Is this such an issue for landlords? After all, the majority of landlords I know are more than happy to retain a good tenant and its is more cost effective than trying to find a new one. Linking rent increases to the relevant inflationary indices, where RPI or CPI, seems a sensible solution for everyone.

However, Mr Corbyn did mention the idea of a tenant being able to give notice and vacate at any point during the tenancy. No further details have been provided regarding the length of notice but it would seem rather unfair on landlords who may end up seeking new tenants at times outside the traditionally popular letting periods.

Housing benefit

Labour have promised to halt cuts in social security which of course would include housing benefit payments. Over the years, government cuts to housing benefit have, without a doubt, resulted in an increase in rent arrears evictions, which in turn have contributed to the UK's rising homelessness.

If security of income can be guaranteed by stopping further benefit cuts then many landlords will be more amenable to accepting tenants in receipt of housing benefit. A potentially positive outcome for both tenant and landlord and a factor which may go some way to halt rising homelessness.

Property developers

Outside of the rental market, Labour have turned their attention to some property developers tactics of "land banking" i.e. purchasing swathes of land with no intention to develop until market conditions improve or planning permission is obtained which substantially increases the land value and is then sold to another investor/developer. In some cases this can take years, all the while local communities receive no benefit through housing or infrastructure.

To halt, or at least severely disrupt this practice, Labour have promised to introduce a tax for those developers not utilising potential development land, as well as amend the current system for compulsory purchase powers i.e. the forced sale to local government of specific sites.

Overall?

As the months roll on there seems to be little to distinguish between the Conservatives and Labour's approach to fixing the UK's housing market. If we read between the sensationalist tabloid headlines it seems that landlords contribution to the nations private rented market are too substantial to discourage investment in the sector entirely. As a result, should Labour be the next government we will likely see tenants being given increased security of tenure as longer term tenancies become the norm, however, this will have a limited impact on the student market who by their very nature are a transient renter group.

The most concerning aspect of Labour's party conference was the potential for rent controls, however, as discussed above its unlikely this will be implemented given the almost immediate effect of discouraging investment in the sector.